There’s no such thing as a perfect solution to the student debt problem confronting tens of millions of Americans. President Joe Biden’s partial solution is guaranteed to make the left unhappy for not going far enough and to be lambasted by the right for being too generous and moving the goalposts on financial responsibility.
This Editorial Board is not thrilled with the message loan forgiveness sends to people who make financial promises they can’t keep, or about the message it sends to people who worked hard, struggled to make ends meet and ultimately paid off their loans without asking for forgiveness. The effect of Biden’s plan, paying $10,000 to $20,000 to cover existing qualified debts, is to shoulder taxpayers with the financial burden of student debtors who, for whatever reason, can’t handle the debt burden by themselves. At best, Biden’s plan is a stopgap measure. Skyrocketing tuition costs mean student debt burdens are only going to grow worse in the future.
That said, the fact that Black student debtors have the highest average amount of outstanding debt should give skeptics pause for reflection. Black borrowers owe an average of around $52,000 on their federal student loans for bachelor’s degrees, and 50% report having a debt burden that exceeds their net worth, according to the Education Data Initiative.
Pell Grant recipients are twice as likely to be Black as white, and they are the ones who would qualify under Biden’s plan for up to $20,000 in forgiveness. Why do they deserve special treatment? It largely boils down to the income and job opportunity inequalities in the workplace. Black employees who graduate with the same degree as white employees tend to be paid less, meaning a larger percentage of their take-home pay goes toward paying off their loans.
A 2016 Brookings Institution study found that Black graduates’ income-to-debt ratio was around 27 percentage points higher than that of whites. Black graduates under 35 are significantly less likely to own a home than whites, the Urban Institute reports. Such disparities help explain some of the need for forgiveness. Even when race isn’t a factor, those at lower incomes who hoped a college degree would help them climb the ladder are finding that the college-degree income advantage isn’t enough to cover the debt.
Biden deserves credit for choosing relatively moderate forgiveness figures while putting stronger emphasis on loan repayment. The government will pay the interest as long as the debtor repays the principle on the remaining debt. Many debtors find that escalating interest rates are what prevent them from digging out of their debt hole.
A major weakness with Biden’s plan is that it’s a presidential declaration, meaning his successor can always reverse it. Permanent solutions are for Congress to work out, which probably won’t happen until long after current student debtors reach retirement age.
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